The New Zealand economy is into its eighth year of expansion, and another year of firm activity is on the cards over 2019. However, beneath the surface, conditions in the economy are changing and there are several key areas to watch over the coming year.
With the new year upon us, it's a good time to take a look at how the economy has been tracking and where we're heading over the next few years. On this front, the latest update on GDP from Stats NZ revealed that the economy has lost a bit of steam, with annual GDP growth slowing to 3% in the year to September (down from 3.1% in June and a peak of 3.9% in late-2016). But while the economy has lost some momentum, this slowdown hasn't been as stark as initially estimated. In fact, with more detailed information on economic activity now available, Stats NZ's updated estimates of GDP growth over past years have actually painted a more upbeat picture. And in particular, estimates of growth over 2017 have been revised up quite a bit. Overall, we're left with a picture of an economy that has slowed, but as we enter 2019 is continuing to trundle along at a reasonable pace.
Looking to the year ahead, we expect to see firm economic activity on the back of increases in government spending, a lift in construction, and low interest rates which are boosting both the housing market and household spending. Combined, those conditions should see the economy growing by a little over 3% over 2019. However, those factors are only providing a temporary boost to growth, and as we head into 2020, GDP growth is set to cool again as the current drivers of demand move into new phases.
There are a number of key areas that we'll be keeping a close eye on over 2019. The first is the housing market. Policy changes saw a marked slowdown in house price growth over the past couple of years. However, the next phase of the housing market cycle is actually likely to be an upturn. We've already seen early signs that low mortgage rates are supporting some firming in housing market activity (particularly in Auckland). And that's likely to continue through the early part of this year.
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